OptionPundit

Tag: Berkshire

  • A Straddle Strangle Swap on Berkshire

    This post will explain what’s a Straddle Strangle Swaps option trading strategy? And also share a trade idea on how to use this strategy on Berkshire Hathaway (BRK.B) to make some money while learning it as well.

    A Straddle Strangle Swaps (SSS) is the sale of a front-month Straddle and the purchase of a back-month Strangle. From the pictorial perspective, it looks like a simple Calendar Spread.

    (For beginners who are wondering what is a Straddle and Strangle- A straddle is long 1 call and long 1 put at the same strike price and expiration and on the same stock. For example, long 1 IBM Mar 120 call and long 1 IBM Mar 120 put ; and a Strangle is long 1 call at a higher strike and long 1 put at a lower strike in the same expiration and on the same stock. For example, long 1 IBM Mar 125 call and long 1 IBM Mar 105 put)

    Straddle Strangle Swap (SSS) is a Market-neutral, defined-risk position that profits from positive time decay (theta) as well as collecting credits from rolling short options forward. Most of the time it is a Theta Positive, Vega positive and Delta neutral. Albeit, depending upon IV skew it can be Vega negative; and as underlying moves higher/lower than the short strike, trade can convert into a directional trade thus delta positive and delta negative.

    [OPNewsletter has outperformed the broader market. Pls read customer reviews or If you would like to sign-up for OPNewsletter directly, pls click here to sign-up for the wait-list (as the subscription is by invitation only)].

    (more…)

  • Is Berkshire in Trouble?

    This 2 part series will cover recent market developments about Berkshire Hathaway, points to a strategy on how you may benefit more on the same trades he did recently and an option trading strategy that probably Berkshire uses for maximizing it returns on the underlying they find worth investing. Don’t forget to read the big picture of US stock markets. Markets are behaving pretty much that way. I am opening December portfolios for OPNewsletter, to join, pls click here.

    Before I proceed, I must mention that I admire Mr Buffett’s skills. I got an opportunity to meet-up face to face with him in 2005 and it was one of the finest moments of my life to first hand hear the living legend. Listening and questioning him propelled my learning about his style way more than any book did. I, in no way can doubt his selection or will know in full his style of investing. Beyond classic investing theory, his intuition is par excellence. So below post is a mere attempt to interpret in my way. Pls do your own due diligence before making any decision based on info presented here.

    According to Forbes, The credit default swap market says the Oracle of Omaha is headed for trouble. The credit default swap market thinks so. Spreads on insurance against a debt default by Warren Buffett’s triple-A-rated Berkshire Hathaway are trading about on par with that of the embattled General Electric and worse than Goldman Sachs and Citigroup. Per same article, “Credit default swaps on Berkshire traded at 440 Wednesday, according to Phoenix Partners Group.

    (more…)